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Philippines allows foreign lenders to own local trust corporations

Thu, Jun 18, 2015 - 1:17 PM

[MANILA] Foreign lenders in the Philippines will be allowed to fully own local trust corporations under new guidelines, a central bank official said on Thursday.

In 2011, the Bangko Sentral ng Pilipinas allowed the establishment of stand-alone trust corporations to encourage banks to spin off their departments and allow market players, other than banks, to provide trust services.

Separating the functions of banks and trust entities was aimed at reducing risks and enabling the central bank to better monitor the activities of trust entities. "As a stand-alone entity we can enhance the prudential standards including capital dedicated to that business and specific governance standards applicable to that business," BSP Deputy Governor Nestor Espenilla told Reuters.

Trust corporations perform the same functions as trust departments of banks which engage in funds management under a trustor-trustee arrangement.

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To align ownership rules with a new law which liberalised entry of foreign banks in the country, Espenilla said the central bank will allow up to 100 percent foreign ownership of trust corporations by qualified foreign investors.

The new guidelines also gave trust corporations more leeway in complying with the required capitalisation.

From 100 million pesos (S$2.96 million) at inception, they were given a 5-year transition period within which to increase their capital to 300 million pesos.

In a statement, the central bank said trust corporations will not be subjected to rules on lending to directors, officers, stockholders and their related interests (DOSRI) and the single borrower's limit (SBL). "If the (trust) units itself are spun off there is more distance (from the bank) and there are more capital and we can easily spot conflicts of interests," Mr Espenilla said.

Robinsons Bank President Elfren Antonio Sarte said banks will be encouraged to spin off their trust departments into corporations if they can generate attractive returns.